Home Depot sharply cut its sales forecast for the second half of the year and warned of weakening consumer sentiment about the economy.
A major home improvement chain on Tuesday blamed disappointing second-quarter results on high interest rates and fears of an economic recession.
Home Depot Chief Financial Officer Richard McPhail said: He told CNBC He said Tuesday that consumers have adopted a “deferral mindset” since the middle of last year, leading to less spending on home improvement projects.
“Experts say it’s not just rising lending costs that are causing customers to defer repayments for the first time,” he said.
“They are postponing it because they perceive increased economic uncertainty.”
A recent survey of 2,000 Americans found that three in five believe the U.S. is currently in a recession, even though government data shows the economy is growing.
The latest employment figures for July released by the Department of Labor showed a slowdown in hiring, raising concerns that a recession is looming.
Economic uncertainty and labor market concerns caused the stock market to crash last week, but the Dow Jones Industrial Average and Nasdaq Index recovered from losses.
Shares of the Atlanta-based retailer fell as much as 5% before the open of trading on Tuesday but rebounded early in the session after the company said it expects sales this year to be down 3% to 4% compared with last year.
Home Depot, seen as a gauge of consumer behavior and economic trends, released its latest earnings report Tuesday, showing a bigger-than-expected drop in same-store sales in the second quarter.
“During the quarter, rising interest rates and increased macroeconomic uncertainty exerted broad-based pressure on consumer demand and led to lower spending,” Chief Executive Officer Ted Decker said.
As rising mortgage rates and home prices have sapped sales of new homes, customers have put off major projects like flooring, kitchen cabinets and bathrooms to cope with soaring inflation.
Foot traffic fell 0.4% in July after rising 4.3% in June due to weak new home sales in May and June, according to Placer.ai data.
Home Depot now expects full-year same-store sales to fall 3% to 4%, compared with its previous outlook of a decline of about 1%.
LSEG data showed second-quarter same-store sales fell 3.3%, beating expectations of a 1.98% fall, while customer transactions fell 1.8%, marking the 13th consecutive quarter of declines.
Home Depot’s balance sheet has been trending downward since the peak of the coronavirus pandemic.
The company reported revenue of about $132.1 billion in 2020, up 20% from $110.2 billion the previous year.
The following year, Home Depot reported revenue of $151.2 billion and $157.4 billion in 2022 as pandemic-era spending continues to grow rapidly.
Home Depot had revenue of $157.7 billion last year, up slightly from 2022. The slowdown in spending on home improvements coincided with consumers favoring travel and concert tickets.
Home Depot’s profits have also fallen victim to soaring inflation and rising interest rates, which have limited discretionary spending and increased borrowing costs.
Decker said he remains optimistic despite the slump.
“The longer-term fundamentals supporting home improvement demand are strong,” the CEO told analysts.
Good news may be on the way for a housing market that has been plagued by chronically high demand and low inventory.
Mortgage rates fell to their lowest level in more than a year last week.
The average interest rate on a 30-year fixed-rate loan fell to 6.47% from 6.73% the previous week, according to a survey conducted by mortgage broker Freddie Mac.
At the same time last year, the average 30-year interest rate was 6.96%.
With post wire
